Going once, going twice, and maybe broke too

An online penny auction site started by a Bern man offers extremely low prices but hopeful buyers must pay to bid psychoauction.com

The prices are so low it smells of a scam: MacBooks for less than SFr17 ($15.93) or a Wii for SFr7.71. Who but a schemer would sell SFr30 in cash for 12 cents?

This content was published on June 6, 2009 - 18:11

Nicolas Dickreuter, a former investment banker from Bern, has started an online auction site where deep discounts on concert tickets, electronics and even cold cash itself are not only legitimate offers but also a potential way to turn pennies into profit.

Dickreuter's site, psychoauction.com, was launched about one month ago from his home in London. Since then he has sold dozens of iPhones, computers, and other expensive goods for a fraction of their sticker prices.

"I've been thinking of putting up something nicer for auction, like a car or a holiday trip," Dickreuter told swissinfo.ch. "I want to put up items that people want and can afford. The fact that you can buy an iPhone for one Swiss franc or a dollar is a bit crazy."

Dickreuter buys the items himself at going retail prices and then ships them to auction winners almost anywhere around the globe free of charge.

And while British tabloids muse that Dickreuter is throwing his fortune into a spectacularly poor business model, the 30-year-old swears it is only a matter of time before the venture turns into a profit.

"I do have great respect for money," said the former Lehman Brothers hedge-fund manager. "Everyone has been hit pretty hard by the credit crisis and I know how difficult it can be to make a living."

The catch

The business plan behind Dickreuter's site is rather simple. Whereas other auction sites like eBay charge sellers a fee for items they list, Dickreuter charges for the bids themselves.

It is called a penny auction and it works like this: Dickreuter finds an item that he believes has high consumer appeal, such as an iPod or Michael Jackson concert tickets. Interested buyers log onto psychoauction.com and can place three bids for free. Each bid increases the price by just one cent and prolongs how long the auction lasts.

"People who just use their free bids are not likely to win," he said. "So you buy bids, each one costs about SFr1.40 right now. If you buy ten bids or so, that makes a difference in your chances of winning."

People who buy more bids also have other advantages, such as access to statistics showing how likely you are to win an item or how many people have automatic bids ready to go at the last minute. That enables visitors to use their bids more wisely, Dickreuter said.

So while official sites offer those Michael Jackson tickets for about €150 (SFr227), one person recently won two of them with a bid of 30 cents. If enough people purchase bids, then Dickreuter can take a loss on the actual item while still making a profit. At least, that's the idea.

"If I keep on losing money I may have to look for investors," Dickreuter said. "But I really want to keep the prices low, at least 50 percent discounts if not 80."

Winners built on losers

Of course that means plenty of would-be buyers will lose money bidding on items they do not win.

The trick is to be patient and place bids strategically, says Russell Southern, a 28-year-old assistant manager hotel from southern Britain who won a Wii gaming console for less than SFr14. He spent about SFr52 on bids.

"You have to set yourself a limit and not just keep buying bids," Southern said. "I thought there was no way I was going to win but I did."

He says he also won two tickets to a rugby final for two pence and is currently bidding on an iPhone 3G. If he does not win those he says he would not be upset at losing money on the bids.

"I've already saved so much on the Wii," he said amid the blips and bleeps of playing a round of Wii Sports.

Away from eBay

Dickreuter, who moved to London in 2005 after studying at St Gallen University, says he got the idea for the auction site after leaving a London branch of Lehman Brothers shortly before the investment bank went bankrupt. He realised the world of finance was not for him.

"I wanted to do something different," he said.

While Dickreuter will not disclose how many registered users psychoauction.com has so far, he did say he had to upgrade his servers last week to handle the amount of traffic he has received just one month after the launch.

"I think a lot of people are a bit fed up with eBay," he said. "Items are not that cheap anymore and you have high costs."

Clelia Morales, a spokeswoman for eBay Europe, said the company usually does not comment on other auction sites but added that the online auction giant "deeply respects" its competitors. "We believe competition is good for the e-commerce industry," she said.

For the moment, Dickreuter has about ten auctions running but more are coming. He says he is open to suggestions on what he should sell, too.

"When an item is not popular, people don't bid," he said. "In the end I need to make sure that I end up being profitable, which is not an easy thing obviously."

Tim Neville, swissinfo.ch

Key facts

Items that have sold recently
32GB memory stick: SFr0.91
SFr30 in cash: SFr0.12
Bose speaker dock for iPod: SFr3.99
Prada Tendre Luxury Box Set: SFr1.48
iPod Nano: SFr1.14
19-inch LCD TV from LG: SFr4.21
iPhone 3G: SFr46.28

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Pence to pounds

With items like an iPod Touch selling for as little as SFr1.81, penny auction sites like psychoauction.com attract buyers with prices so low there has to be a catch – and there is.

After three free bids, each subsequent bid on psychoauction.com costs about SFr1.40 for the moment and increases the cost of the item by one cent. Every time a bid is placed, a countdown timer resets, prolonging the time that others can bid.

Dickreuter buys the items himself with no sponsorships or discounts. He can potentially earn a handsome profit while suffering a huge loss between the cost of the item and its selling price as long as there are enough people placing bids.

Here is a simplified example that does not consider overhead costs: If a 16GB iPhone 3G retails for SFr1090 on Amazon, the site where he buys many of his items, Dickreuter will break even if the auction price hits just SFr7.73. That selling price would require 773 bids, which would generate a little more than SFr1,082 in revenue.

When Dickreuter sold SFr30 in cash for 12 cents, he theoretically took a loss of SFr13.20. To break even with no overhead costs, the selling price would have to climb to 22 cents.

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